Last Sunday, the government cut the excise duty on many items by 4 per cent with immediate effect. The duty cuts meant cut in additional customs duty (CVD) too and as a consequence the aggregate import duties came down as well. Besides, the export obligation under Export Promotion Capital Goods (EPCG) scheme came down and the quantum of bond or bank guarantee to be furnished under the EPCG scheme and duty exemption scheme also fell. Duty on clearances from Export Oriented Units (EoUs) to Domestic Tariff Area (DTA) also fell and changes in Cenvat Credit Rules, 2004 altered the quantum of Cenvat credit for the DTA buyer too.
On items that attract the basic customs duty (BCD) rate of 10 per cent, the excise duty cuts reduced the aggregate import duty from 31.70 per cent to 26.85 per cent, a fall of 4.85 percentage points. The Cenvat Credit available on such items fell from 20.93 per cent to 16.21 per cent, a fall of 4.72 per centage points and the non-Cenvat component fell from 10.78 per cent to 10.64 per cent, a fall of 0.14 percentage points. Similarly, on items that now attract lesser BCD and CVD of 10.30 per cent, the aggregate import duty fell in the range of 4.85 percentage points to 4.50 percentage points making imports of such goods cheaper. For such goods, the non-Cenvat component fell in the range of 0.12 percentage points to 0.14 percentage points.
Under the Export Promotion Capital Goods scheme, the consequential impact was a fall in the duty saved calculation that brought down the export obligation. For most capital goods attracting 7.5 per cent and 5 per cent BCD, the export obligation fell by 18.57 percentage points and 20.59 percentage points respectively. For an exporter, who imports capital goods at 7.5 per cent and 5 per cent BCD for a value of Rs 100 and is in a position to fulfil 75 per cent of export obligation in half the export obligation period, the obligation would be only Rs 124.83 and Rs 107.11 respectively only. For small scale industries, in similar position, the export obligation would be only Rs 93.62 and Rs 80.33 respectively.
For exporters using advance authorisation, the quantum of bond and bank guarantee to be furnished to the Customs is based on the duty saved. With reduction in duty rates, the amount of duty saved goes down and consequently, the bond amount and the quantum of bank guarantee to be furnished also go down. Similar reduction in bond and bank guarantee amounts result under Export Promotion Capital Goods scheme also. Export Oriented Units will also see reductions in quantum of B-17 bond and bank guarantee to be furnished.
For Export Oriented Units to Domestic Tariff Area sales, within the Domestic Tariff Area sale entitlement, goods (that attract 10 per cent BCD and 10.3 per cent CVD if imported) will attract excise duty of 16.78 per cent, if manufactured from imported inputs and cleared on payment of Value Added Tax (VAT). Out of this, the buyer will be entitled to take credit of 10.56 per cent, according to the revised formula prescribed by amending the Cenvat Credit Rules on the December 5, 2008. The amendment of the formula should have come after the Budget 2008 changes but it has come now.
Surprisingly, the government has not revised the amount of 10 per cent that manufacturers of dutiable and non-dutiable goods pay upon clearance of non-dutiable products under Rule 6 (3) of the Cenvat Credit Rules, 2004. It should be reduced to about 6 per cent.
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Meanwhile, the commerce ministry has extended the life of Foreign Trade Policy and Handbook of Procedures indefinitely but DEPB rates will be valid till end May 2009.